Can Small Business Grow Without Chargeback Pain?

Chargebacks impact the business’s bottom line in ways that are difficult to recover. For example, when a customer disputes a sale or requests a chargeback, the merchant stands the risk of losing products or services that have already been sold, the payment, the fees incurred for payment processing, money for chargeback penalty, or even possible commissions for currency conversions. The merchants can also get flagged by their payment processors losing image and credibility.

From a merchants’ perspective, chargebacks are costly and chances of winning are slim as only 20% of the case are decided in favor of the merchants. With stakes so high there’s only one way to win: to avoid chargebacks!

Chargeback Flow

In the case of a dispute or some kind (e.g., goods never arrived or charge was not authorized) the cardholder’s bank typically refunds the customer quickly.

Their bank contacts the merchant bank.

The merchant bank issues a chargeback against the retailer’s account meaning debits their bank account. This may or may not include a penalty.

The retailer has a certain amount of time (typically 14 days) to refute or accept the chargeback. If the retailer prevails, the chargeback is reversed.

Reasons for Chargebacks

Here are the typical reasons for chargebacks:

Returned merchandise–there’s not much the retailer can do when someone who orders a blue table complains that its color is not the same blue as shown on the website. Sometimes people just change their mind between the shopping cart and opening the package when it arrives.

Credit was not issued– this can happen when customer has returned merchandise but credits or refunds have not been issued.

Item was not ordered – i.e., a fraudulent charge on their card or, it could be they forgot that they purchased an item, in which case the retailer can demonstrate that they did indeed make the purchase.

Item was not received- when a shipped good did not reach its destination.

Fraud– variety of situation where stolen card or stolen identity is used to order goods.

Ways to Prevent Chargebacks

There are way to avoid errors, including the need to packaging items correctly to prevent damage, cutting off or curtailing purchases from problematic customers, documenting each stage of the transaction and dispute, and some proven ways to reduce fraud.

Company information– chargebacks do occur when customers don’t recognize the charges being made on their statements. Make sure your company info is clearly reflected on the bill.

Proper Packaging– in order to reduce the chances of damaged goods delivered to the customers.

Provide contact information– make sure customers can contact you before reaching out to the card issuing bank to file a dispute.

Prompt Refunds and Credits– pay close attention to how credits and voids are handled and make sure refunds are processed within the promised time frame.

Keep a database of problem customers– as the old saying goes: “some customers you cannot afford to lose; others you cannot afford to keep.” A retailer might not want to not take any more orders from customers who return too many products or call too many times with complaints saying their merchandise arrived damaged.

Limiting the number of orders from new customers– as the retailer is building a relationship with a new customer, particularly for high value items, they could limit how much the customer can purchase to make sure they are honest.

Use an address verification service– these services help prevent fraud by checking that the billing address belongs to the person making the purchase.

Treat high resale value items differently–some fraud comes from criminals buying products and then reselling them to others. Such products could be sold with extra security measures, like phoning the customer or otherwise verifying their identity.

Call customers to verify the order– this works well for mail order businesses and those that let customers phone in orders or expensive purchases made over the web.

Verified by Visa– let Visa take some of the burden of risk and help prevent against stolen cards.

MasterCard Secure Code– same program as Visa except it is for MasterCard.

Growing a business or just surviving the first few years until the business is viable is difficult enough with pressure from costs, competitor, labor difficulties, supplier problems, etc. One way to reduce setbacks in that plan is to avoid credit card chargebacks. Contact us to learn more about ways we help our merchant prevent chargebacks and increase credit card transaction security.